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https://doi.org/10.1177/1475240917722276
Journal of Research in
International Education
1 –16
© The Author(s) 2017
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DOI: 10.1177/1475240917722276
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JRIE
The Great Asian International
School Gold Rush: an economic
analysis
Denry Machin
Keele University, UK
Abstract
The number of international schools is growing, especially in Asia. This presents competitive challenges;
most obviously for student recruitment and retention. However, demand for places at these schools is also
growing. As a result, while international schooling may feel competitive, aggregate economic data show that
growing numbers do not axiomatically equate to fierce competition; many schools enjoy benign market
pressures. This observation, the paper concludes, encourages a more nuanced view of international school
competition across Asia – and of its gold rush conditions.
Keywords
International school, industry, economics, market, competition
Introduction
This paper argues that the international school industry in Asia is currently enjoying gold rush
market conditions. The lived-reality of international schooling in that geographic region may feel
competitive and many schools do face fierce rivalry, but aggregate data and economic analysis
paint a different picture. According to ISC Research (2017), in June 2017 there were 8,926 interna-
tional schools worldwide. Overall, at the time or writing, ISC calculates that more than 4.8 million
students are being educated at these schools, with enrolment projected to reach 8.7 million by
2027. In Asia, defined here as spanning Western Asia (the Middle East) through Eastern Asia,
Southern Asia and South East Asia, there are 5,032 international schools. Exemplifying the rate of
regional growth, at the turn of the century Hong Kong had 92 internationals schools and now has
176; Thailand had less than a dozen, today 181. Since 2012 the number of international schools in
Myanmar has more than doubled, from 25 to 51. In the United Arab Emirates, the number of
schools increased by 15% between 2015 and 2016, with 78 new schools opened in the space of a
single year (ISC Research 2016a). International schooling, it seems, is ‘an idea whose time has
come’ (Pocha, 2006 in Bunnell, 2008:385).
Corresponding author:
Denry Machin, School of Social Sciences and Public Policy, Keele University, Staffordshire ST5 5GB, UK.
Email: d.machin@keele.ac.uk
722276JRI0010.1177/1475240917722276Journal of Research in International EducationMachin
research-article2017
Article
2 Journal of Research in International Education 00(0)
However, rather than taking this growth as a proxy for increased competition, it is argued here
that the number of schools is a headline-grabbing but misleading statistic. The basis of this conten-
tion is an analysis which finds moderating influences on the economic environments in which
(many but by no means all) international schools operate. Building on previous papers in this
journal, particularly those also adopting an industry-level perspective – most notably the works of
Cambridge (2002) and MacDonald (2006; 2007; 2009) – and on the work of Bunnell (2008), con-
sideration focusses on the nature and extent of international school competition. Use of Michael
Porter’s ‘Five Forces’ (1979) and the application of economic metrics (price elasticity of demand,
income data and calculation of industry concentration ratios) shows that, in many regards, interna-
tional schools enjoy buoyant market conditions and benign competitive influences. Indeed, the
South China Morning Post reported that, despite growing international school numbers, demand in
China remains ‘insatiable’ (South China Morning Post, 2016). At the moment, with demand
exceeding supply, there is enough gold for everybody.
This paper will proceed firstly with a review of the drivers of international school growth: glo-
balisation and neoliberalism. Secondly, discussion turns to the nature of competition, applying
business and economic theory to exemplar Asian cities and countries where international schools
are common. Finally, through analysis of the various data, a new and more nuanced slant is added
to understandings of international school competition. These findings have potential interest for
school owners, Heads, business managers and admissions staff, and for the small but growing body
of researchers giving attention to the economics of international schooling. Prior to that analysis,
an important caveat: the data presented here are in the aggregate. The situation for individual
schools may not align with what these aggregate data suggest. While the findings offer insight at
the level of the school, the paper’s intention is a macro-level economic analysis. The modest hope
is that this academic focus, freed from the empirical shackles of individual context, will offer new
or alternate insight into the nature of competition between schools.
What are international schools?
Making economic analysis problematic, there exists no universal definition of what an interna-
tional school actually is. Indeed, the title ‘international’ is open for any school to adopt as they see
fit, has no restriction on its use (Murphy, 2000; Walker, 2004), and no single organisation grants
rights to the term (Hayden, 2006). According to Blandford and Shaw:
“In terms of phase, size and sex, international schools defy definition: they may include kindergarten,
primary, middle and upper, higher or secondary pupils, or incorporate all of these in a combined school;
they may range in [student] numbers from twenty to 4500; they could be coeducational or single sex.”
(2001:2)
Motivations for being an international school include a philosophical alignment to international
education, commercial incentive (the term ‘international’ conveying status and prestige in the mar-
ket) and the more pragmatic adoption of the title to avoid State-directed regulatory control. As a
result of the numerous motivations and of the nebulous nature of international schools, various
academics have taken up the definitional mantle, attempting to classify international schools.
Synthesising a variety of research, Hayden and Thompson suggest that international schools:
“invariably offer a curriculum that is other than that of the host country in which the school is located [and]
… their students are frequently non-nationals of the host country (though more recently, increasing
numbers of such schools in some countries are catering largely for children of affluent host country
Machin 3
families) [and] … tend, in many cases, to be staffed by relatively large numbers of expatriate teachers and
administrators”. (Hayden and Thompson, 2008:28)
Such attempts at definition have, however, been somewhat overtaken by events. For example, as
the parenthesised text within this quote suggests, many international schools are now heavily pop-
ulated with local nationals, not expatriates. Indeed, ISC Research (2017b) reports that 80% of
international school students are now local nationals. Nor do all international schools offer an
‘international’ curriculum. In a curious oxymoron, nearly 40% of the world’s (so called) ‘interna-
tional’ schools offer variants and varieties of the National Curriculum for England – perhaps
because, as Scott (2003; in Bunnell, 2008) has argued, the British economic elite are embedded
throughout the global economy, thereby having stronger connections in markets such as Asia.
Rather than distinctions, types and typologies, it is perhaps more appropriate to conceive of inter-
national schools as a spectrum of institutions, variously titled ‘international’, which serve the mul-
tiple needs of diverse populations through diverse curriculums and in diverse locations – institutions
that may share the title ‘international’ but, perhaps, little else.
On that basis, and to offer a degree of technical clarity to the terms of reference for this paper,
it will be taken – as is the case with ISC Research data – that an ‘international school’ is one which
self declares as such. Notably, ISC Research define international schools in their terms of reference
as schools “operating wholly or partially in English”. In practice this means that also included in
the data are, for example, French, German, Swiss and an increasing number of bilingual schools
which declare themselves ‘international’ and deliver lessons in their own national language, and not
only in English or in the language local to where the school is located. As above then, it appears
that definitional wrangling has been overtaken by events; if a self-declared ‘international school’ is
attended full-time by students who study a curriculum (at least in some substantive part) that is not
of the country in which the school is geographically located, offering at least some part of its cur-
riculum in English, it is included in ISC Research data, and is therefore also included here.
Globalisation and Neoliberalism: The Drivers of International School Growth
Notwithstanding the many ‘complex, overlapping [and] disjunctive’ interpretations of globalisa-
tion (Appadurai, 1997:326), it is impossible to ignore the effect it has had on international educa-
tion. Despite a very few outlying monocultural ‘areas of education, such as some school curricular
systems … which are either unaffected by the forces of globalisation or actively resistant to them’
(Coulby, 2005:25), school-level education is ‘increasingly enmeshed in worldwide systems and
networks of interaction’ (Held and McGrew, 2000:3) that represent and result from globalisation.
International education is not, though, an exclusively 21st century phenomenon; it may have
found energy in the wake of globalisation, but ‘international initiatives in education existed before
anyone was discussing globalisation’ (Shields, 2013:63). What is new (or at least newer) are the
perspectives and possibilities that globalisation brings to how such education is delivered.
While international education and international schooling may not be mutually exclusive, with
the ‘twin missions of pragmatic global acceptability of qualifications and ideological promotion of
international peace and understanding [as] bedfellows’ (Hayden, 2010:221), international schools
were (and still are) ahead of their time as transnational spaces endorsing global mobility and global
forms of education. They are, therefore, structurally and ideologically, at the forefront of ‘respond-
ing to the needs of global capitalism [and] preparing young people for a professional future in
transnational organisations’ (Lallo and Resnik, 2008:148). This makes international schools an
important site of study, of interest not only to economists and market commentators but also to
those concerned with how, why and where education is delivered.
4 Journal of Research in International Education 00(0)
Privately funded international schools offer governments a pragmatic response to the need to
provide international education and a response to the demands of the growing middle classes for
quality educational provision. State education may remain the majority form worldwide, but inter-
national schools represent a market correction which offsets the lower utility (often) found in
government provided education; they provide an efficient means of a country’s citizens gaining
globally acceptable qualifications (the International Baccalaureate, for instance) and a fiscal
response to increasing school choice and quality without increasing government expenditure. The
decision by a given country as to whether or not to embrace international schools as a response to
such demands and, then, whether to allow (or not) local nationals to attend those schools, is under-
pinned by political and economic ideology and, in particular, by neoliberalism.
As ‘the dominant ideology shaping our world today’ (Saad-Filho and Johnston, 2005:1), neolib-
eralism informs a ‘belief that nation states ought to abstain from intervening in the economy, [leav-
ing] as much as possible up to individuals participating in free and self-regulating markets’
(Thorsen and Lie, 2007:2). Tracing its roots back to the classical liberalism advocated by Adam
Smith (Clarke, 2005), in these terms neoliberalism is better understood as economic liberalism;
that is, whereas political liberalism favours individual liberty, free trade and moderate political and
social reform, economic liberalism focuses on a drive to ground public services ‘in the economic
rationality of markets’ (Shamir, 2008:3). Thus, in many countries delivery of education is increas-
ingly shifting towards market solutions (Barzelay, 2001; Pollit and Bouckaert, 2004). State man-
agement of education is, according to Peck and Tickell, being ‘rolled-back’, and supply-side
polices that enthusiastically encourage private-sector involvement in the educational arena ‘rolled-
out’ (2002:389).
Supporters of neoliberalism contend that creating a privat(ised) quasi-market in educational
services fosters competition between providers, spurs choice, encourages delivery at a lower cost
than through traditional state-run schools and, above all, improves quality (Ball, 2012; 2013).
Whether these outcomes have been achieved is, according to Molnar and Garcia (2007), debatable;
it is clear however, after Ball (2013), that in many countries governmental policy preferences of
recent decades have increasingly leant towards economic liberalisation and to a ‘businessing of
education’ (Black, 2005:2) that is opening up possibilities for strategic investment by for-profit
organisations – indeed, according to ISC Research (2017), based on global averages 80% of inter-
national schools are now run for-profit.
In this paradigm, Ball (2012) argues, the role of the state is to set the limits of markets ‘whilst
at the same time creating the conditions within which the market can flourish and expand’ (op.
cit.:17). That is not to say that governments are seeking to extract themselves from the responsibili-
ties of education, but rather that neoliberalism sees those responsibilities exercised through new
modalities – a transference, Ball (2013) suggests, from government to governance. Thus, it is in
these ideological and political shifts that the space and incentive for international schools as a
mode of educational delivery is to be found. For example, in Asia:
In 1992 Thailand deregulated its private schools market, permitting international schools to
allow attendance of local nationals (Techavijit, 2007) and, in 2013, then Education Minister
Phongthep Thepkanjana asserted that ‘the business sector step in and actively engage in the
provision of educational services’ (Saengpassa, 2013).
In 2012 the Malaysian government introduced regulatory changes giving a 100% tax incen-
tive on capital expenditure for new international schools, or existing international schools
undertaking expansion (ICEF, 2012; Ang and Kwok, 2012).
The South Korean government gave both Branksome Hall and North London Collegiate
School significant investment to support their opening on the island of Jeju (Ang and Kwok,
2012).
Machin 5
Legislation in India was passed in 2016, intended to expand foreign participation in India’s
education system (ICEF, 2016).
In sum, globalisation has created the demand (and necessity) for international education. In turn,
neoliberal policy has created the regulatory framework (and the ideological acceptance) for that
demand to be filled (at least in part) by international schools.
How though does this growth play out for individual schools? With the number of international
schools rapidly increasing, to what extent do the swelled ranks translate as increased competition?
The discussion which follows addresses this question. Based on economic data from a range of
sources, Michael Porter’s Five Forces Analysis (1979) is used to test whether the economics of
international schooling sharpens or mitigates the competitive pressures faced by international
schools.
How competitive is the international school industry?
Written in 1979, Michael Porter’s first Harvard Business Review paper, ‘How Competitive Forces
Shape Strategy’, offers a model for evaluating the influence of market forces. Porter suggested that
the competitiveness of an industry depends on five basic forces: the threat of new market entrants,
the threat of substitutes, the bargaining power of suppliers, the bargaining power of buyers, and the
competitive rivalry among firms in the market (Porter, 1979:140). Each of those forces is now
considered with regard to international schooling.
Threat of Entry
According to Porter, the threat of new entrants (in this case new schools) is determined by the
extent and type of barriers to entry. In simple terms, the easier it is to enter a market, the more new
entrants there will be and the more competitive the market. Porter lists a range of factors that deter-
mine threat of entry, the most significant of these being economies of scale – the financial benefits
(cost savings) a firm gains as it grows in size (Arnold, 2013). Scale is important because the size
of market incumbents acts as a deterrent to entry by forcing new firms to enter at scale (increasing
the capital requirement) or by forcing new firms to accept a cost disadvantage and, therefore, limi-
tations on price and profitability (Porter, 1980). In short, the greater the economies of scale enjoyed
by incumbents, the lower the threat of entry.
For international schools however, economies of scale do not seem to act as a significant barrier
to entry. Globally, in the year to January 2016 the number of international schools grew by 12% to
8,203 (Molnar, 2016). In mid-2017 the latest ISC Research data show that an additional 723
schools have been added to the mix, the market now totalling 8,926; in Asia alone, between July
2016 and March 2017 some 421 new international schools were established. Such rapid growth
suggests a market where the number and scale of incumbents acts as little deterrent to market
entrants.
Similarly, the ability to raise sufficient capital for market entry also presents limited barriers to
entry. Porter suggests that where ‘industry returns are attractive … and [where] capital markets are
efficient, investors will provide entrants with the funds they need’ (2008:27). That sentiment is
echoed for international schools in the surfeit of local investors seeking international school part-
ners (Sambidge, 2013) and, as noted above, in the financial support offered to international schools
by many Asian governments. Thus, whilst availability of capital is a consideration, it is not a sub-
stantive barrier to market entry. As the growth in international school numbers across Asia shows,
where it is needed, start-up capital appears to be readily available.
6 Journal of Research in International Education 00(0)
Such analysis suggests competitive markets. With economies of scale and access to capital pro-
viding limited barriers to entry, it appears relatively easy for new schools to set-up. In Porter’s
terms, the field should be highly competitive. Countering this, though, are what Porter calls
‘incumbency advantages independent of size’ (Porter, 2008:27). In essence, these advantages are
the industry norms that define minimum quality/service standards. Here, what deters entry is not
size but the approaches of incumbents. As parents and students (customers) come to expect higher
levels of service, defined for example in the scope, effectiveness and quality of school provision,
it becomes ever more expensive for new entrants to replicate the norms of the field; the cost of
operational efficacy becomes a barrier to entry.
These incumbency advantages also extend to what Porter calls switching costs: ‘costs that buy-
ers face when they change suppliers’ (Porter, 2008:27). For international schools these switching
costs are exceptionally high. Emotional connections to an individual school, reputation effects and
substantial non-refundable application and registration fees create strong irreversibilities. Once
committed to, an international school education is often hard to abandon part way through: at the
very least, few parents or children would wish a return to state education. As a result, international
schooling is a market with high emotional and financial switching costs; incumbents gain signifi-
cant advantage from the irreversibility of buyers’ decisions.
These advantages seem to play out in the number of smaller international schools: 68% have
rolls of fewer than 499 students (ISC Research, 2017). The predominance of these small schools
suggests that the extent to which scale can be exploited is limited. Larger schools do, of course,
enjoy benefits – attracting, for example, better qualified staff, and the ability to spread recruitment
costs over a larger number of staff – but the advantages of scale do not seem to preclude the
flourishing of smaller schools. In even the smallest countries/cities there is often geographic and
strategic space for new schools to secure a segment of the market. Of 114 international schools in
Singapore, for example, only 21 educate more than 1,000 students, whereas 75 educate fewer than
250 students (ISC Research, 2017).
On the one hand then, scale and capital requirements seem to present limited barriers to entry,
in theory increasing competitiveness. On the other hand, the advantages of incumbency and high
switching costs substantially mitigate these threats. As the extent of international school growth
attests, in many markets new schools are able to find niches (locational or strategic) that protect
them from incumbents, and in turn protect the incumbents from competitive threat. What emerges
is a field where the number of schools may be growing, but only to the extent that new entrants can
capture new market growth (i.e. the extent to which they can capture segments of the market not
currently being served by incumbents).
Threat of Substitutes
For Porter, a substitute ‘performs the same or a similar function as an industry’s product by a
different means’ (1980:31). Put simply, the more attractive the performance of substitutes, the
greater the competitive demands. Here those alternative means can be considered as forms of
international education offered by the state or by non-international private schools. However, as
noted above, set against a neoliberal ideology which encourages and supports international
schooling, there is strong evidence that, in much of Asia, state education is not considered, even
by the states themselves, as a viable substitute for an international school education. Given
the region-wide demand for international school places, the same can also be said to be true of
parents; in many markets international schools (currently) offer a form of international education
often largely unavailable by other means. In Asia particularly, international schooling (currently)
lacks close substitutes.
Machin 7
Longer term, however, local private schools, and even local state schools, may start to offer
viable competition and could capture market share previously destined for international schools.
Indeed, market trends show that these schools, necessitated by the demands of globalisation, are
increasingly offering international curriculum streams and are beginning to employ larger numbers
of Western (or, at the very least, English speaking) teachers (ISC Research, 2016b). At the moment,
these schools cater largely to parents for whom an international school education is out of financial
reach. Over time though it is conceivable that some of these schools will broaden their offerings
and improve their quality, thus competing more directly with international schools – an intriguing
possibility.
The other substitution danger, hinted at by Clark (2014), is that once fees reach a level com-
mensurate with that charged in the UK or US, parents of local nationals attending international
schools may choose to send their children overseas. Whilst many international schools may cur-
rently enjoy favourable conditions, schools seeking to exploit those conditions would be well
advised to exercise caution before increasing fees too much.
On balance, though, research suggests that many international schools currently turnover less
than 10% of their student roll annually (Grattan Institute, 2013). Set against compound growth in
student numbers of 300% (since 2000) and average annual growth of more than 10% (ISC Research,
2017), substitution may be a concern but, in aggregate, international schools seem able to replace
any losses. The low quality of substitutes, the high financial and emotional switching costs, and the
large numbers of buyers entering the markets mitigates the threat of substitution.
Power of Suppliers
Porter defines the power of suppliers as the ability of those suppliers ‘to squeeze profitability out
of an industry that is unable to pass on cost increases in its own prices’ (1980:27). The greater the
extent to which firms are faced with rising costs the harder they must fight to protect profitability
and, therefore, the more competitive the market becomes.
In cost terms, the greatest threat to schools comes from teachers. With between two-thirds and
three-quarters of school fees spent on staff salaries (The Economist, 2009) and with, as Roberts and
Mancuso (2014) argued in a previous issue of this journal, teacher retention and salary packages
closely linked, salary costs are a significant factor in the profitability of schools. Teachers could,
in theory, demand increases to pay and conditions such that profitability was reduced, and the
competitiveness of the industry increased. In some markets these effects are already being felt. For
example, according to Masudi, ‘rising competition between private international schools in the
[United Arab Emirates] is fuelling demand for quality teachers, who now expect greater pay and
benefits’ (2016). However, across most of Asia supply of teachers outstrips demand (IPSEF, 2016).
The power of teachers to demand terms is consequently minimal. Whilst schools do compete for
teachers, there is currently sufficient supply of labour to mitigate (though by no means remove) the
impact of that competition.
Of the various suppliers of other educational services (caterers, book suppliers and the like)
none, arguably, has sufficient monopoly to exert significant power on international schools. Even
where a school has limited supplier options – school catering for example – the cost of those ser-
vices is usually small (relative to other costs) and is often charged directly to students. Similarly,
whilst there are curriculum and examination expenses, for the most part these costs are met by
parents. In short, so long as any increased supplier costs can be passed on to parents (as they tradi-
tionally have been), profit margins should remain healthy.
As with threat of entry, this analysis suggests that competitive pressures as a result of market
tightening are (currently) relatively weak. Suppliers are not (yet) squeezing out profitability and, in
8 Journal of Research in International Education 00(0)
turn, the schools are not, at least not in Porter’s terms, being driven by supplier power to turn to
cost-cutting and/or marketing activities to maintain financial surplus.
Power of Buyers
Buyers are considered powerful, and the industry more competitive, if they have sufficient lever-
age to force price reductions. As Porter states:
“Powerful customers – the flipside of powerful suppliers – can capture more value by forcing down prices,
demanding better quality or more service (thereby driving up costs).” (1980:24)
As discussed above, the power of buyers is determined by substitutability; the availability of alter-
native products that serve similar needs. The larger the number of substitutes (the more alternatives
available to the consumer), the greater the power of buyers and the harder firms have to fight for
those buyers. At first glance then, it would seem that international schools are highly substitutable,
the curricula of one school easily interchangeable with those of others. The reality, though, is that
once a student commences study on a particular curriculum the ease with which one can be substi-
tuted for another is significantly reduced. Initial choice is key; every year that a student spends in
one curriculum system increases the difficulty of shifting to an alternate – though this does ease
slightly with post-16 choices.
There are considerations too regarding the type of school suitable for a particular child or fam-
ily’s needs. Brand is also increasingly important. Parents’ willingness to pay international school
fees is linked to the social status assigned to Western education (Waters, 2006; in Bunnell, 2008),
status that once achieved is hard to give up. Consequently, as noted, private schooling has high
switching costs. There may appear to be substitutes but, due to the financial, emotional and logisti-
cal irreversibility of initial parental/child decisions, their freedom to later choose alternatives is
often limited.
The extent of substitutability is also reduced by locational factors. Based on research which
shows students that usually travel less than forty minutes to attend school, Parthenon Education
contend that ‘K-12 education is a local catchment business’ (Parthenon, 2015:12). K-12 students
will only travel limited distances to go to school, and younger students travel even shorter dis-
tances again. Whilst international schools offering boarding services do exist, anecdotal evidence
suggests that they represent only a small proportion of the market (with exact numbers difficult to
ascertain). The relative accessibility of a given school’s location vis-à-vis accessibility by a given
family reduces substitutability.
The consequence of this relative lack of substitutability can be observed in market prices
(international school fees). Traditionally price and demand have an inverse relationship. As shown
in Figure 1, under normal economic circumstances demand tends to increase as price falls (con-
trariwise, demand decreases as prices rise). The sensitivity of the relationship between price and
demand is represented in the gradient of the demand curve (Figure 1); ceteris paribus the steeper
the curve the greater the impact of price changes on demand. The extent of this price sensitivity
can be calculated using price elasticity of demand (PED) as follows:
Price Elasticity of Demand PED =Percentage Change in Qua
()
nntity Demanded
Percentage Change in Price
The more sensitive is the demand for a good to price, the larger the output of this formula. So, for
example, where PED is very sensitive a price increase will lead to a proportionally larger fall in
Machin 9
demand; the good/service is termed price elastic and will have a PED of greater than 1. Where the
formula yields a result smaller than 1, demand for the good is considered to be not very sensitive
to price (price inelastic) (McConnell, Brue and Flynn, 2012).
Using data from ISC Research and Parthenon Education, applying the PED formula to a variety
of international school markets is revealing (see Table 1). Referring back to Figure 1, because
under normal circumstances the demand curve is downward sloping, the numerator and denomina-
tor of the PED formula always have opposite signs; if one is positive, the other is negative (if, for
example, price increases then demand falls). Thus, when calculated, PED is always negative –
except, it seems, in the case of international school education. For the international school markets
analysed in Table 1, both variables are positive and therefore PED is also, unusually, positive.
Despite the laws of economics, in these markets as school fees have risen demand has also
increased, and at a proportionally faster rate.
This anomaly is explained by the concept of a Veblen good. Named after the economist Thorstein
Veblen, ‘conspicuous consumption’ (Leibenstein, 1950:183) and its close companion ‘competitive
consumption’ (Hirsch, 1997 in Lury, 2011:47) increase demand for a good as its price rises. The
more expensive the good, the more status a buyer accrues from purchase. For schools, parents are
willing to pay more (and more and more) because of the benefits and prestige attached to an
Figure 1. Relationship of Demand to Price (Arnold, 2013).
Table 1. Price elasticity of demand for indicative international school markets.
Country Years Percentage Change in Number
of Children in International
Schools (Demand)
Percentage Change in
School Fees (Price)
Price Elasticity
of Demand
Thailand 2006-2012 +49.5% +36% +1.4
Malaysia 2011-2015 +39% +11% +3.7
Dubai 2005-2011 +8% +4.5% +1.77
Saudi Arabia 2014-2015 +9% +9% +1
Singapore 2010-2015 +186% +6% +31
Beijing 2014-2015 +23% +5% +4.6
Shanghai 2014-2015 +22% +5.5 +4
Hong Kong 2015-2016 +8% +6% +1.33
NB – Varying date ranges were dependent on data availability (via Khemka, 2012; ISC Research, 2017 and Parthenon
Education, 2016).
10 Journal of Research in International Education 00(0)
international school education. Combined with the impact of rising incomes (see below), Veblen
conditions put such a powerful upward pressure on demand that normal price dynamics are
reversed. While parental resistance to fee rises may be vocal, such opposition is, the data suggest,
relatively toothless. As The Economist notes in reference to private education generally:
“As long as fees do not go up unbearably in any one year, parents, like frogs in slowly boiled water, stay
rather than jump” (The Economist, 2009)
With the weight of economic forces behind them, the market seems to be tolerating (indeed, seem-
ingly ignoring) substantial annual price rises. It is reasonable to ask for how long this might con-
tinue? How hot does the water need to be before the frogs do start jumping?
A partial answer to this question is provided through consideration of parental income. As Clark
(2014) notes, the outsized growth in fee income is suggestive of a market where ability (and will-
ingness) to pay is rising rapidly. In Malaysia, for example, the Compound Average Growth Rate
(CAGR) of gross household income was 7% between 2005 and 2014; for Indonesia this figure was
13% and for Vietnam 14% (Parthenon, 2016). Moreover, across Asia ‘families [are] getting smaller
and parents are willing to spend more on their children, especially on education’ (Liu, 2015). The
price of an international school education may be increasing, but so too is the wealth and number
of those who value this form of education for their children.
Barring major economic catastrophe then, if incomes continue to rise across Asia, international
schools should continue to enjoy a privileged existence. Few other markets can claim the type of
benign competitive conditions that see prices rise and rise without buyers exiting the market in
significant numbers.
Intensity of Rivalry
According to Porter, the intensity of competition within an industry depends on the nature and
extent of rivalry between firms; the greater the market limitations on profit the more intense the
competition (1980). In addressing this rivalry, MacDonald (2006) examined whether the structural
conditions of monopoly, oligopoly, monopolistic competition or perfect competition might best
describe the nature of competition between international schools. While acknowledging the vari-
ability of structural conditions across different countries, he offered though only an overview of
how each might apply empirically, stopping short of concluding which model/s might describe a
given location. His observations are, however, a useful starting point. MacDonald rightly dismisses
perfect competition – a theoretical market situation where there are many sellers, each selling
homogenous products with buyers enjoying perfect knowledge and no switching costs – as a hypo-
thetical construction ‘not describing international school markets very well’ (op cit: 205). He also
correctly identifies the existence of local monopolies as present in some international school
markets:
“In some cities, it is not uncommon to find only one supplier of international education with no direct
competition. In this case, the school could be called a monopoly”. (op cit: 204)
MacDonald also acknowledges, albeit obliquely, the possibility that some international school
markets may be oligopolistic (where a few schools dominate). He also introduces the notion of
monopolistic competition, a theme worthy of further development.
Monopolistic competition describes a market structure in which there are many competitors,
each with a slightly different product offering (Arnold, 2013). Under these conditions, there are
Machin 11
many buyers (in the case of schools, parents) and many sellers (the schools themselves). However,
through product differentiation, or geographical location, each firm offers – to some extent at least
– a ‘unique’ product and thus exercises a greater degree of control over prices than is common in
more competitive markets. In order to test this hypothesis, it is possible to calculate a market con-
centration ratio – a measure of the proportion of total output in an industry produced by the largest
firms (Arnold, 2013). The most commonly used concentration ratio is a ‘four-firm’ calculation:
total sales of the largest four firms divided by total industry sales. Substituting sales with student
numbers, the formula – with C4 signifying the concentration ratio, S1 through S4 signifying student
roll for the four largest schools, and SR the total student numbers across the market – is as follows
(Baye, 2013:233):
C=S+ S + S+ S
S
4
1234
R
100
Using data from the respective school websites (where, in order to protect anonymity, only roll data
have been given, not school names) applied to Thailand as of March 2017, this equates to a con-
centration ratio of 17% (i.e. 17% of the market is dominated by the four largest schools):
2 260 1 805 1 614 1586
41 850 100 17
,,,
,%
+++×=
Perfect competition equates to an outcome of 0%, and 100% to a monopoly. Anything between 1%
and 50% represents monopolistic competition, with oligopoly at 50% and over (Arnold, 2013).
With a ratio of 17%, Thailand is monopolistic competitive. Similar monopolistically competitive
market structures can be found across Asia, as shown in Table 2.
As a result of the market power afforded by monopolistic competition, schools in markets such
as these can charge premium fees and/or attract large student rolls, thereby enjoying (in theory at
least) short-run supernormal profits. Where normal profit is defined as the minimum reward that is
just sufficient to keep the entrepreneur supplying their enterprise, supernormal profit is where a
firm makes more than normal profit. That is, normal profit offers a reward above the level of
Table 2. Exemplar Four-Firm Concentration Ratios (data via ISC Research, 2015).
Country City Four Firm Concentration Ratio
Perfect Competition (0%)
UAE Dubai 4%
Monopolistically
Competitive
China Shanghai 9%
China Beijing 10%
UAE Abu Dhabi 10%
Hong Kong - 11%
Pakistan Karachi 12%
Thailand Bangkok 17%
Japan Tokyo 18%
Vietnam Ho Chi Minh City 19%
Singapore - 21%
Malaysia Kuala Lumpur 25%
Oligopoly (>50%)
12 Journal of Research in International Education 00(0)
opportunity cost, just better than the next best alternative; supernormal profits are earned when
total revenue is greater than the total costs, including the opportunity cost of normal profit (Arnold,
2013). This seems to fit both academically and empirically with the growth of the international
school industry – as compared to alternatives, the international schools market is an attractive one
in which to invest.
As a cautionary note, the gold-rush climate of supernormal profits does not last forever. Over
the long-run, supernormal profits attract new market entrants and profits fall back to normal levels.
The exact timing of this shift will vary according to the specifics of each market (and in the case of
international schools, each country and each city), but a tightening of conditions is already being
seen in some areas – at the time of writing, the effects of tax incentives for new international
schools in Malaysia (increasing supply), for example, combined with an economic downturn
(reducing demand) have increased competition in that market.
Discussion
As has been shown, in some regards the nature of the international school industry serves to reduce
rivalry. Low buyer power, low supplier power, high parental switching costs, limited advantages of
scale, plus – for many schools – monopolistically competitive conditions, each reduces market
pressures. Moreover, in many countries demand outstrips supply; the result being an environment
where rising prices do not seem to result in substantive reductions in demand (not to date, at least).
However, with top-tier international school fees coming within touching-distance of Western
private school equivalents and with the increasing availability of substitutes (most notably non-
international schools offering varying forms of international education), there are competitive
threats. To this end, a review of many international school conference programmes will make clear
that school managers are increasingly required to ‘decide what attributes make the school more
attractive … [and] what differentiates the school … within the marketplace’ (Murgatroyd and
Morgan, 1994:39).
More broadly, the relatively benign conditions do not mean that international schools are not
competing in other non-economic ways. Independent of economically-derived competition there
exists a positional logic between private schools (Marginson, 1997). This positionality, created by
systems that reify comparison with other schools, is used to gain competitive advantage. Schools
may not need these bragging rights in economic terms, but they claim them and loudly proclaim
them regardless. Schools do this in many ways. Some publicise their superiority by highlighting
academic results, others through reference to sporting success, drama productions, charity work or
extra-curricular opportunities. Additionally, as Marginson also notes, schools are increasingly
making reference to the competitive advantage that their students will gain over others in terms of
their future prospects for jobs, income, social standing and prestige.
Significantly, this positionality does eventually play out economically. Pragmatically, a
school that regularly churns a significant proportion of its roll cannot thrive educationally. If
successful students leave to finish their education at a more prestigious school, then it is that
new school which ultimately benefits from the previous groundwork (often the hardest work)
when those students graduate with high grades. Whereas net income may be unaffected if stu-
dents are replaced (as demand figures suggest occurs), in time the original school would have
been able to charge higher fees if it had retained those students and reaped the marketing ben-
efits of its successful graduates. Empirically, this is the reality for many second-tier interna-
tional schools. These schools may be able to replace leavers in short-run economic terms, but
retaining them would improve long-run positionality, enabling them to charge higher fees/
attract more students.
Machin 13
More theoretically, places in elite international schools are like waterfront acreage or artistic
works by a particular master, in that more cannot be produced without undermining the value of
the originals. Where access to a product is scare (as is currently the case, in aggregate terms, with
international schools) ownership attracts social status. However, as supply increases (as is happen-
ing) that value declines – the product becomes commoditised. When this happens the nature of
competition shifts. Price becomes increasingly important, customers become fickle, and profitabil-
ity gets squeezed. The emotive nature of schooling may protect against this to some degree – edu-
cation is more than a commodity purchase – but that does not make schools immune. The Asian
international school gold rush will only last so long.
Conclusions
With the caveat that aggregate data masks the lived reality of individual schools, in Porter’s terms,
fuelled by the growing ability and willingness of parents to pay for an international education,
international schools operate from an advantaged position. Brought to life by globalisation and by
the global sweep of neoliberalism, international schools may be under pressure to differentiate
themselves (they need to secure their market positions), but protected by monopolistically com-
petitive market forces and aided by rising incomes, many of them are yet to feel the ravages of
intensive economic rivalry. For the moment, taken in aggregate, the weight of market forces is
behind international schools, urging them on, encouraging them to open new campuses and new
branches. The days of supernormal profits may be waning but, for the moment, few international
schools have to fight for their survival.
This is not to say that competition is not a factor in international school dynamics. The
monopolistically competitive nature of some markets may limit the impact of economic forces,
but international schools clearly feel the need to actively promote their distinctiveness beyond
any need to fill capacity or to hit profit targets. International schools may not be competing
against each other for numbers, but they are competing with each other for legitimacy, for pri-
macy of educational might and for the benefits of prestige. That is, in the (current) gold rush
environment of international schooling there is competition, but that competition is not primar-
ily economic.
This is a subtle but important distinction. The claims of this paper may not offer respite from the
pressures of competition but they do add nuance to the debate. The paper encourages a shift in
focus from numbers to nature. New entrants may only minimally threaten incumbents’ economic
position (any decline in numbers on roll easily rectified), but they do threaten positionality. That is,
a school which focuses solely on numbers misses the bigger picture. As the market inevitably
matures, failure to secure a defensible position, whether on the basis of geographic location, cur-
riculum offering or some other business strategy, risks commoditisation – the school will find itself
easily substitutable. Successful schools will be those that have secured strong market positions,
perhaps even at the expense of short-term numbers.
The international school market is growing, especially in Asia. That is, however, a sensa-
tionalist but superficial observation. Through use of Porter’s Five Forces this paper has offered
a view of how that growth is playing out. Supported by rising demand for international educa-
tion across the region, many international schools currently enjoy benign competitive condi-
tions. Yet, and those schools benefitting from these gold rush conditions would do well to heed
the lessons of history – gold rushes rarely last forever. The challenge for both incumbents and
prospectors is to stake a positional claim, one that protects the school when the gold stops
flowing.
14 Journal of Research in International Education 00(0)
Funding
The author received no financial support for the research, authorship, and/or publication of this article.
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Author biography
Denry Machin, PhD, is an Associate Lecturer with Keele University (UK) and an educational consultant spe-
cialising in new school start-ups in Asia. His research interests include corporate influences on education,
educational markets, school leadership and management, and headship in international schools.
